Are These the Next Big Thing or Just Fads?
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Retail stores took a pretty significant hit during the Great Recession, but the economy has largely recovered. So there may still be some good deals with solid growth and the potential to put money in your pocket.
Saks (NYSE: SKS) is an interesting gem of a company. I like that it caters to the high end market, which tends to do well in spite of however the economy may be doing at any given moment. I also like how the company has expanded in a carefully controlled manner since the early part of the 20th century into resort cities first and major cities in a year-round capacity second. Unfortunately, I do have some issues with Saks.
First off, the midtown Manhattan location is one of Saks's largest revenue generators. While I admire NYC and think it's a great city, I don't like when a company depends heavily on one location to make its profits. I'm also not too thrilled about the rather sparse 2.6% profit margins. If you're just scraping by at the high end during reasonable times, I don't like the prognosis if anything slips.
On top of that, there are the charge back issues that Saks had to resolve with the SEC a few years ago. I don't like associating with shady companies because what goes around comes around. While Saks is a sought after place to sell your goods, it's not so unassailable that a vendor can't simply go to Neiman Marcus or Lord and Taylor.
Dillard's (NYSE: DDS) is a bit of a mixed bag. While they've given up their growth by acquisition strategy and have only made tiny acquisitions in decades, they've also closed their travel agency. Their profit margins are nearly double those of Saks, and Dillard's is trading at around 13 times its trailing earnings. I like that the company is expanding by opening new stores and experimenting with different setups instead of taking over old stores. I also like how Dillard's is conscious of keeping its stores in some of the most high-end locations in the cities it operates within.
Truth be told, I like Dillard's overall from a business perspective. It's established, takes care to locate itself well, and the Dillard family is still very active within the company. However, the .2% dividend is a bit of a waste -- either they can afford a higher payout or they need the money to grow.
Kohl's (NYSE: KSS) is a good deal larger than the previous two companies mentioned, coming in at more than twice Dillard's market cap and pulling slightly higher profit margins. Kohl's is pretty stable considering its presence in the S&P 500 and strong showing in the Fortune 500 list. Coming in as the 4th largest US department store by sales volume and the 20th largest retailer by gross revenue, and has been cited several times for selling reusable shopping bags, employing solar panels in many of their stores, and pursuing green building certifications.
One issue I do have with Kohl's is that their systems seem to be deficient in employee training. According to reviews I read at Glassdoor.com, at many locations there's a general lack of openness to ideas from the sales floor, and training is insufficient. As I learned when I worked in a big company, low morale in the trenches tends to lead to less-than-stellar company-wide performance. If they could get this issue squared away, I'd rate Kohl's as an absolute must-have for its 2.8% dividend and the fact that it's trading for around 10.5 times earnings.
pongun has no position in any stocks mentioned. The Motley Fool owns shares of Dillard's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!